Financial Mail - Investors Monthly - - Opening Bell -

Share price: R99,88 JSE code: AFE

BUY WHILE THE SHARE PRICE IS NEAR ITS low af­ter los­ing 16,1% over the past year, all the im­por­tant met­rics are mov­ing in the right di­rec­tion for AECI.

It is spend­ing just over R1bn on ac­qui­si­tions, which CE Mark Dy­tor says are help­ing the bot­tom line.

Gear­ing is down to 20% (22%) and the trad­ing mar­gin has firmed to 11,5% (10,2%). The in­terim cash div­i­dend of 125c was 9% bet­ter than the 115c that was paid in the pre­vi­ous in­terim pe­riod.

AECI is also wait­ing for R400m to come in from selling land at Som­er­set West. Prop­erty trans­ac­tions have been big for AECI — last year it made a profit of R421m from a bulk land dis­posal at Mod­der­fontein.

The ac­qui­si­tions are aimed at strength­en­ing one of AECI’s three main busi­nesses of ex­plo­sives, spe­cial­ity chem­i­cals and prop­erty, and ul­ti­mately at fur­ther im­prov­ing prof­itabil­ity.

AECI has a diver­si­fied ge­o­graphic spread, with oper­a­tions in Africa, Aus­tralia and In­done­sia. $11m was spent on the Farm­ers Or­gan­i­sa­tion in Malawi. The com­pany also spent R235m on South­ern Canned Prod­ucts, a juice busi­ness in the Western Cape. Ear­lier it paid $23m for a 42,6% stake in In­done­sian chem­i­cal firm Black Bear Re­sources In­done­sia.

But AECI makes most of its money from spe­cial­ity chem­i­cals, ac­count­ing for rev­enue of R4,39bn and op­er­at­ing profit of R532m.

On a for­ward PE of 9,9 times, nearly the same as the his­tor­i­cal price:earn­ings ra­tio, en­try into AECI is fairly cheap at the mo­ment, and that’s what makes it a buy.

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